“Flag selling”: the decline of brazilian shipping companies?

A curious reader would wonder at the reason for the title “The Decline of Brazilian Shipping Companies”. This mention harks back to a reality that for a long time has been the case in the Brazilian shipping scenario.

If, back in time, our Merchant Marine enjoyed a strong position, nowadays many Brazilian Shipping Lines have become simple “companies on paper” and “flag sellers”.

It is imperative here, first of all, to applaud the steps taken by Agência Nacional de Transportes Aquaviários (ANTAQ) [National Waterborne Transport Agency], with a view to eradicating the infamous practice titled “Flag Selling”. The present Board of Directors has been endeavoring to establish a regulating standard, not only laying down rules, but also reorganizing the Agency itself (e.g., implantation of units in the ports), and setting up the structure of the required control – which will demand effort and creativity to face the inventive ruses meant to circumvent regulation.

Still with regard to the timely steps taken by the Agency, deserving the highest praise in Public Polls carried out in 2015, aiming at improving Resolutions 4.262 and 4.271, it should be mentioned: The first one, for the purpose of ruling on the granting of authority to a corporate entity, involving waterborne transportation. The second one, in turn, regulating on rights and duties of users and companies operating in maritime support, port support, coastal and ocean going navigation.

The recent Resolution n° 01/2015 issues forth from the Regulating Agency with a view to fighting against the harmful practice of “flag selling”. This norm is incorporated into Brazilian legislation with a view to establishing procedures and criteria for ship chartering from Brazilian shipping companies.

During the public hearing prior to publishing above mentioned rule, Dr. Mario Povia, ANTAQ General Director, explained that among the Agency’s aims, two stand out: “cases involving flag selling, which is to offer a Brazilian Shipping Company’s right as an intermediary agent, earning for intermediating the operation; and the other one is the emerging of companies on paper, negotiatingANTAQ’s waivers, acquired through circularization, for foreign vessel companies seeking to operate in the market without limitations.” (www.antaq.gov.br, 09/10/2014).

Praiseworthy and timely is the institutional concern shown by the Agency. In fact, regulation of procedures and criteria regarding chartering by Brazilian Shipping Lines is in perfect harmony with control exerted according to the terms of Article 27, XXI Act 10.233/2001.

Rigorous control is beneficial to Brazilian shipping companies. Contrario sensu, continuation of “flag selling” to foreign shipowners results in incommensurable losses. Reliable Brazilian shipping companies desirous of acting in accordance with applicable laws, face an excessively disloyal competition.

This because foreign shipping lines “buying” waivers obtained from Brazilian shipping companies and effectively operating the vessels, become entirely free of any taxes otherwise due. Through collecting freight abroad, they pay no taxes whatsoever in Brazil. Therefore, in addition to imposing a disloyal competition and keeping away from the market Brazilian shipping lines, “flag selling” has also the effect of causing an impact on the country’s revenue.

On the other hand, control when accurately carried out, will attract reliable shipping lines. With the rebirth of a strong Merchant Marine and intensified coastal navigation, beneficial effects to Brazilian economy are bound to ensue.

It should be noted that, even though the Regulating Agency must protect Brazilian interests, the concern over the practice of “flag selling” is not at all excessive nationalism/protectionism. On the contrary, authorities involved are very much aware that it is important to value foreign capital coming into Brazil and investing in the organization of Brazilian shipping lines. In that respect, we should bear in mind that the Federal Constitution itself rules that the law shall discipline, based on national interest, foreign capital investments. Lack of required strict surveillance, on the other hand, ends up by pushing away any interest towards investing in Brazil, at such negative time for the sector, considering the recession in the offshore industry.

As aptly put by ANTAQ’s present management, the occasion cries out for strong control. We would like to believe, along with the auspicious Regulating Agency, that this will bear good fruit. Otherwise, we shall stride towards the decline of Brazilian shipping companies: either through the disincentive to such companies as seek to be included in the market, but come up against disloyal competition carried out by the foreign “flag buying” shipping lines; or by Brazilian shipping companies still remaining in “activity”, but today branded as “companies on paper”, surviving only from the “sale of their flags and waivers”, lacking the slightest structure to operate a sea venture under their own power.